Samruk Kazyna, Kazakhstan’s $63 billion sovereign wealth fund, is blowing its profits on salaries and expensive offices rather than giving the money to taxpayers, according to a damning analysis of the fund.

Murat Temirkhanov, a former financial analyst at Halyk Bank, has published a report that highlights the “deplorable results” at Samruk, which is run by a controversial politician called Akhmetzhan Yessimov.

According to Temirkhanov, the fund receives millions of dollars in dividends from its holding companies but this money is spent on supporting Samruk rather than flowing back to the Kazakh Government.

“Dividends received by the National Wealth Fund [Samruk] are used to support the very expensive activities of the Fund's central office, as well as to finance various projects, the effectiveness of which is highly questionable,” Temirkhanov said.

Samruk was established in 2008 in an attempt to mirror the success of Singapore’s Temasec sovereign wealth fund. Samruk owns numerous state-owned assets, including the national postal and telecom services, and its purpose is to develop these businesses as viable commercial entities in the private sector.

However, Samruk’s performance under Yessimov has frequently been criticised and a committee of the Kazakh Parliament said last year that the fund would be loss-making, if accounting measures were excluded.

In Temirkhanov’s analysis, he investigated the performance of one of Samruk’s largest divisions: Tau-Ken Samruk (TS). TS holds Samruk’s various mining companies and its most valuable asset is a 29% stake in Kazzinc, a copper and zinc producer controlled by Glencore.

Temirkhanov found that Kazzinc contributed dividends of 51.6 billion tenge in 2019 but that TKS report profits of 40.2 billion tenge, implying that all of TKS’s other assets produced a loss of 11.4 billion tenge ($27m).

“Tau-Ken Samruk hides its deep unprofitability due to its share in the profit of a private company - Kazzinc.,” Temirkhanov said. “Also, to pay for the upkeep of its head office with growing costs, TS uses dividends from Kazzinc.”

The analyst noted that despite large dividends produced by companies including Kazzinc, Samruk contributed only 12.7 billion tenge of dividends to the Kazakh Government in 2018. In the first nine months of 2019, Samruk contributed nothing.

Temirkhanov said it was important that dividends from private enterprises were given to the state in a transparent way that promoted accountability for performance.

“Such a very important reform will solve the problems whereby the huge dividends received by state holdings… are used extremely ineffectively, and most importantly - extremely opaquely, which is fraught with high corruption risks,” he said.

After several years of poor performance under Akhmetzhan Yessimov, a former agriculture minister in Kazakhstan, the Government has now demanded that the fund increase its dividend payments.

Yessimov, who has no background in financial services, has also been criticised for permitting Samruk to deposit more than $350 million of cash at ATF Bank, which is run by his son-in-law Galimzhan Yessenov .

Another analysis of the performance of Samruk’s Tau-Ken subsidiary has found that its free cash flow has collapsed since Yessimov began running the fund. Zharas Akhmetov, an economist, said that TS’s reported negative free cash flows of -22.8 billion tenge in 2018 and -12 billion in 2019.

Akhmetov said that TS had seen negative cash flows since 2009 and that meant its parent, the Samruk fund, had to provide support as it was unable to operate independently. He added that these actions were questionable given that it was hard to imagine that a private investor would maintain assets that had not paid off for 11 years.